Budget Expectations

Finance Minister Nirmala Sitharaman is all set to present the eighth consecutive Union Budget today that includes the Interim Budget of the previous year. This year the taxpayers are expecting reductions in tax rates besides the higher exemption limits due to soaring inflation and ever changing consumption patterns. Disposable incomes are reducing. Thus in such a situation the experts are asking for the inclusion of HRA, Section 80 C deductions and standard rupees one lakh deduction in the Union Budget. It is proper to mention that in 2020 the Union Budget introduced the tax regime that acted as an alternative to simplify the tax structure. It offers lower rates in comparison to the old tax regime. That includes the HRA. Standard reductions for the salaried class are available in both regimes, offering a fixed deduction of rupees 50,000,whatever may be the gross salary. It extends to the pensioners as well. The Finance Minister increased the standard deduction to rupees 75,000 in the new tax regime. The experts are expecting relief to the tax costs that they have to bear on the salary. With the introduction of the new tax regime Sitharaman had allowed an increased standard deduction of rupees 75,000 for those who choose the new tax regime. Due to ever increasing inflation and price rise in the transportation and medical sector from 2018 onwards, standard deduction was put in place. There is indeed an urgency to bring parity for both sets of people who opt for either of the two tax regimes. For this, experts are suggesting a minimum deduction of rupees 1.20 lakh per year. Meanwhile, in a report by SBI Research released ahead of the Finance Minister’s Budget presentation today, it is said that the centre may eliminate all exemptions under the old tax regime and may pave the way for the transition to the new tax regime. This report has recommended an increase in the National Pension System(NPS) in terms of its limit from rupees 50,000 to rupees 1 lakh besides it also recommends increasing the medical insurance exemption from rupees 25,000 to rupees 50,000 under Section 80D.Not only this this report proposes decreasing the tax rate to 15% for the income group of 15-20 lakh with implementation of a flat 15 % tax rate on all bank deposits. The thrust is clearly on better tax compliance to encourage consumption by allowing a scope for the disposable income by implementing the new tax regime. As per the Economic Survey, the nation aims to accelerate its economic growth rate in the coming years due to the tailwind of strong balance sheets in the domestic, corporate and financial sectors. This report has also indicated that globalisation is on the retreat. One thing has to be borne in mind that the market sentiments in the United States have created a probability of a meaningful market correction in 2025 in the Indian stock markets. The Economic Survey has said in such a backdrop it can have a cascading effect on the Indian economy in terms of emerging retail investors in the Indian stock markets. Underlining this point, it says that many of these investors who have entered the market post-pandemic have never witnessed a significant and prolonged market correction. In such a scenario, if one were to occur, its impact on sentiment and spending may be non-trivial. Let us see what the Finance Minister has to offer.